USD150 million impact on US airlines from winter storms

Analysis

If Continental’s experience is any measure, the US airline industry may be looking at USD150 million in storm-related losses for February and certainly more than that for the first quarter. Yesterday, the Houston-based carrier indicated that February’s series of 'snowpacalypses' that ran up the East Coast reduced its consolidated passenger revenue for the month by approximately USD25 million. The storms caused the suspension of operations at its New York hub on 10-Feb-2010 and 26-Feb-2010.

Of course, given the differing sizes of the network and low-cost groups, that number may be overstated, but it is likely the winter blast disruptions will show up in first quarter results as significant impacts. (Complicating year-on-year comparisons however will be the extraordinarily weak activity levels in 1Q2009).

There is also the impact of the Philadelphia/Baltimore/Washington DC-area cancellations and disruptions that were so severe as to close down the US government for four days.

The New York area, of course, is a key connection point, so the ripple effect of flight cancellations across the US, aircraft and crew rescheduling and accommodating passengers in a highly capacity strained system cannot be understated at a time when carriers were hopeful about first quarter results after the devastation from last year.

“The combination of available seat mile reductions caused by the two February snowstorms and the company's re-accommodation of many customers who were impacted by its flight cancellations resulted in a year-on-year RASM benefit of approximately one percentage point, compared to the year-on-year RASM performance the company would have expected had the company flown the capacity it cancelled as a result of the storms,” said Continental in reporting its monthly statistics.

Silver lining

For Feb-2010, consolidated passenger revenue per available seat mile (RASM) is estimated to have increased between 7.5% and 8.5% year-on-year, while mainline RASM is estimated to have increased between 5.5% and 6.5%.

CRT Capital Group Analyst, Micheal Derchin, estimates Continental’s total February yield rose about 1% on a further limitation on the number of sale seats. He told Marketwatch, “we expect that domestic yields/prices rose more than 1% as Continental went back to a more restricted 'sale' seat allocation this year compared to last year when concerns about the economy lead to more leisure sale seats made available earlier than normal," Derchin added consolidated passenger revenue rose an estimated 4% for February – “a far cry from the 20% declines last summer”.

Meanwhile, the new Department of Transportation rule limiting taxiway delays to three hours has yet to take effect and the industry is asking for a postponement to enable technology changes. There has been much discussion about carriers, in an abundance of caution regarding the rule, canceling far more flights than actually necessary, to avoid any long delays and to keep performance figures rosier than they might have been.

Now all the industry needs is the accountants to disclose the overall economic impact of these new airline policies on taxiway delays to illustrate the US Air Transportation Association’s oft-repeated law of unintended consequences of the taxiway-delay rule. Such a calculation would likely give ATA the ammunition it needs to say, “I told you so.”

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